I took money out of my own company — do I have to pay it back, and at what interest rate? For 2026–27 it's 8.77%

The company is yours. Some months you pay yourself a wage, some months a dividend, and in between the company account covers things that are plainly personal — a fare, a school fee, a transfer across to your own account to carry the mortgage while a large invoice sits unpaid. Nobody signed anything, because who would you sign it with.

At year end that stack of transfers has a name in the accounts — a loan to a shareholder — and its own part of the tax law. Division 7A treats money a private company lends to a shareholder, or to an associate of a shareholder, as a dividend paid at the end of the income year, unless it is repaid or put on specific terms in time. The rate those terms have to meet has just moved: for the income year ending 30 June 2027 the benchmark rate is 8.77%, up from 8.37%.

Where 8.77% comes from, and why it will not move again this year

The rate is not something the ATO picks. Under Division 7A of Part III of the Income Tax Assessment Act 1936, the benchmark interest rate for an income year is the Reserve Bank's indicator lending rate for bank variable housing loans — the standard owner-occupier rate — last published before that income year starts. For the year ending 30 June 2027 that was the rate published on 5 June 2026, which is where 8.77% comes from. The 2026 year ran on 8.37%, set the same way from the rate published on 6 June 2025. Once set it is locked: if the Reserve Bank later revises the figure, the benchmark for the year does not change.

The part that catches people is that the benchmark applies year by year for the life of the loan, not just in the year you sign. A loan agreement entered into in 2023 is measured against 8.77% this year. Nothing about the paperwork changed; the number it has to keep up with did.

Three conditions, and one date that closes the door

A loan from a private company to a shareholder or an associate is treated as a dividend if it is not fully repaid before the company's lodgment day for the year the loan was made, and no exclusion applies. The main exclusion is a complying loan, and it has three conditions. The interest rate for each year of the loan must be at least the benchmark rate. The term must not exceed seven years — or 25 years, but only where the whole of the loan is secured by a registered mortgage over real property and, when the loan is first made, the market value of that property less any liabilities secured ahead of the loan is at least 110% of the loan amount. And a written agreement must be in place before the company's lodgment day.

That date does more work than anything else here. The company's lodgment day is the earlier of the due date for lodging its income tax return and the date it actually lodges. Before it you have choices: repay the money, put it under a written agreement, or convert payments already made into a complying loan. After it, the choice is gone for that year. If a deemed dividend does arise it is unfranked — assessable income with no franking credit attached — and the total of all Division 7A dividends a company is taken to have paid in a year is capped at its distributable surplus.

There is no prescribed form for the agreement, but at a minimum the ATO expects it to identify the parties, set out the amount and term, state the requirement to repay and the interest rate, and be signed and dated. One agreement can cover loans made across several future income years, which is usually the sensible version where drawings happen every year.

The year after: the minimum yearly repayment

Putting the loan on complying terms is not the end of it. For each income year after the one the loan was made in, a minimum yearly repayment has to be made — principal and interest, sized to pay the loan off across its maximum term. No interest is payable for the year the loan itself was made, so the first minimum repayment falls in the following year.

The calculation uses the current year's benchmark rate, and if the rate written into your agreement is different, the benchmark is still the one used to work out the minimum for Division 7A purposes. So the required repayment on an existing loan is higher this year than last, purely because the rate moved from 8.37% to 8.77%. A direct debit set once at last year's figure and left alone is the quiet way a shortfall happens.

A shortfall matters. Where a loan from an earlier year is still outstanding and the amount paid during the year is less than the minimum, the difference may be treated as a dividend — subject again to distributable surplus — unless the Commissioner exercises the discretion not to. The ATO's Division 7A calculator and decision tool works out the repayment and splits each payment into interest and principal, which is the fastest way to check the figure before 30 June rather than after.

The 30 June round trip, and two things people assume are outside this

The arrangement everyone eventually hears about is to repay the loan just before 30 June and take the money straight back out in July. The ATO addresses it directly, and the answer is section 109R: a repayment is disregarded where a reasonable person would conclude that, at the time it was made, the borrower intended to reborrow a similar or larger amount. In the ATO's own worked example the result is an unfranked deemed dividend in every year the arrangement is run, equal to the amount borrowed.

The first assumption worth checking is what counts as a loan. The definition is wide: an advance of money, a provision of credit or any other form of financial accommodation, a payment made on your behalf that you are obliged to repay, or any transaction that is in substance the same as a loan. Whether anyone called it a loan at the time is not the test.

The second is who is caught — shareholders and associates of shareholders, so money that goes to a spouse, a family member or a related trust sits in the same net as money that goes to you. Loans to another company are excluded, provided that company is not acting as trustee. One related area is in motion: the ATO has flagged on its own Division 7A loans page that it is reviewing its guidance on unpaid trust entitlements owed to a corporate beneficiary after a recent court decision. The shareholder loan rules above are unchanged.

This is general information current as at August 2026, not advice about your company. The sequence before the company return is lodged is short: get the drawings out of the accounts and look at them as a number rather than a habit, decide for each one whether it is repaid, put under a complying agreement, or paid out properly as wages or a dividend, and re-check the minimum yearly repayment on any existing loan now that the rate is 8.77%. Which route makes sense depends on your own figures — the income tax calculator shows what an extra amount of salary costs at this year's rates, and keeping shareholder loan accounts in order is part of what our service for companies, trusts and bookkeeping does.